Risk magazine - Apr 2023
In this issue: the Ion hack; SVB repercussions; Top 10 op risks; Fed’s climate stress test; and much more.
Cover detail:
Eliza de Geus,
Nothing Ever Happens Twice,
Acrylic paint, ink and acrylic gel, 120 x 190cm,
www.anne-mariebainbridge.co.uk,
am.b@btopenworld.com
Articles in this issue
After a hack, loose lips won’t sink chips
Ion Group is the latest ransomware victim to stay mum about how it was compromised. No-one benefits from this code of silence
Missing Basel metric could have revealed SVB risks
US regulators did not implement economic value of equity test that SVB failed badly in 2021
How Finma milked Credit Suisse’s CoCos in UBS deal
Unusual clause in Swiss AT1 bonds allowed them to be written off; could others follow suit?
Term SOFR trading ban remains as easing talks collapse
Fed working group resolute on interdealer trading restrictions despite looming capacity crunch
Swaps market braces for $60 trillion Libor conversion
Staggered timeline should smooth transition, but scale of the switch still presents challenges
Eurex-LCH basis hits new highs amid rates vol
10-year price gap spikes to 4bp as 30-year whipsaws; Eurex gauge indicates stable flow balance
‘Spectacular’ vol disconnect ‘ominous’ for risk assets
Historic divergence has caught the eye of Boaz Weinstein and others
High-frequency flap over CME’s Aurora data centre
FIA Boca 2023: Exchange group’s migration to Google’s cloud could render HFT networks redundant
Rethinking surveillance: a focus on risk and data centralisation
Effective surveillance continues to be a big concern for firms worldwide, for which they need to stay ahead by making systems both predictive and preventative, with a focus on data centralisation. Lee Garf, general manager, compliance at NICE Actimize,…
Hacked off: banks demand answers after Ion cyber attack
Clients left in the dark about ransomware attack that disrupted futures trading last month
SVB opens floodgates on liquidity buffers debate
European regulator says HQLAs should be booked at fair value, but not everyone agrees
Did US hedge accounting rules contribute to SVB’s recklessness?
Hedging and directional risk-taking was a problem, but FASB regime may have complicated matters
EU banks need ‘billions’ in hedges to pass new NII test
Declines in net interest income can be hedged, but the markets may struggle to handle the demand
Top 10 operational risks for 2023
The biggest op risks for the year ahead, as chosen by senior industry practitioners
Challenges still lie ahead as FRTB implementation stalls
While Canada leads the way for implementation, all other jurisdictions are falling behind due to difficult requirements on both the standardised (SA) and internal models approaches (IMA) to the Fundamental Review of the Trading Book (FRTB)
Fed’s climate stress test whips up storm for banks
Long-awaited US climate risk exercise puts tough pressure on banks’ data and models
Still Trussed up: UK pensions confront fallout from LDI crisis
Trustees and consultants are making risky trade-offs as interim guidance increases the cost of hedging
Is Euribor on borrowed time, or here for the duration?
As €STR gains traction, traders are still hedging their bets on a euro benchmark transition
Pricing in volatile markets and potential regulatory impact
A combination of volatile and turbulent prices, challenges for valuation and the introduction of the US Securities and Exchange Commission (SEC) Rule 2a-5 means data specialists are more essential than ever for investment firms
The haves and the ‘have bots’: can AI give vol forecasters an edge?
Firms look to machine learning and natural language processing to gain advantage over peers
OK regulator? How AI became respectable for AML controls
Dutch court case pressures supervisors to accept new tech; explainability the key challenge
Club rules? How German retail trading venues shut out PTFs
Murky rule books prevent non-bank market-makers from competing for Europe’s growing online customer demand
Stemming the tide of rising FX settlement risk
As the trading of emerging markets currencies gathers pace and broader uncertainty sweeps across financial markets, CLS is exploring alternative services designed to mitigate settlement risk for the FX market
SEC cyber rules risk creating web of confusion and costs
Proposals would require breach notifications, public disclosures and annual cyber assessments
Rising rates lead to greater interest in structured products
Trading volumes ‘could increase fivefold’ as a result of short-term rates rise
Regulated UK crypto firms fear authorisation Groundhog Day
Industry wants grandfathering in new Treasury framework to avoid business continuity risk
Tales from the crypto prompt calls for FX-style market structures
Demands for interdealers and prime brokers to be brought into crypto market in wake of FTX debacle
Smart beta pioneer looks to shake up cap-weighted indexes
Rob Arnott says investors can easily avoid hidden costs of traditional indexes
The Catch-22 of US banks’ liquidity buffers
US banks are using held-to-maturity bonds to underpin liquidity adequacy, grating against accounting guidance. What happens if they’re forced to sell?
For 11 US regionals, capital adequacy hinges on AOCI waiver
A repeal of the 2019 provision would hit KeyCorp and Charles Schwab the most
First Republic burned through short-term investments in 2022
Cash and securities maturing within a year went from over- to undermatching short-term funding liabilities
Santander, Credit Suisse hit hardest by AOCI in Europe
Unrealised losses, mostly from exchange rate swings, shave huge chunks off CET1 capital
US banks seize chance to transfer securities from HTM to AFS
Wells Fargo, JP Morgan and Citi reclassify $34bn following new hedge accounting treatment
Deutsche Bank health check comes back clean
From capitalisation to derivatives, Germany’s top bank displays as robust a prudential profile as its peers
Lending via Fed’s BTFP overtakes discount window
Emergency facility extended $79bn last week, $10bn more than central bank’s traditional credit lending tool
Dealing with multi-currency inventory risk in FX cash markets
A market-making model that considers correlation, transaction costs and market impact is presented
Funding, wealth transfer and financial stability in the post-Libor era
Adjusting RFR with a funding premium may aid economic growth and stability
